Czechia ranks among top ten manufacturing destinations

The Czech Republic maintained its top ten global rankings this year in the annual Manufacturing Risk Index (MRI) compiled by Cushman & Wakefield, which assesses criteria such as operating costs, labour, and economic and political risk. Since 2016, when the Czech Republic was included in the MRI for the first time, it has been ranked among the best manufacturing destinations on a regular basis. This year, Poland edged ahead of the Czech Republic in the 47-country comparison, mainly due to its cheaper labour and lower energy prices.

Jiří Kristek, Partner and Head of the Industrial Team, Cushman & Wakefield, commented: “The great news is that, in spite of the current negative climate, the Czech Republic remains at the top of the list of countries whose manufacturing sector is thriving. Major factors behind this are its well-developed transport infrastructure, a business and economic environment that is sustainable, transparent and low-risk, and relatively affordable labour. On the other hand, factors that diminish the country’s appeal include its construction and energy costs, which have been climbing dramatically, especially over the recent period.”

Asia and CEE countries top the rankings

This year, Asia dominated the Baseline scenario ranking, which gives equal importance to a country’s operating conditions and cost competitiveness. Of the top 12 locations, half are in APAC, particularly due to their abundant supply of low-cost labour.

Table 1: Ranking of countries in the Global Manufacturing Risk Index 2022, a Baseline scenario

Source: Cushman & Wakefield

The Central and Eastern Europe region is also strongly represented, with Poland, the Czech Republic, Hungary and Slovakia all making the top 12. Poland overtook the Czech Republic (having been as much as five places below last year) thanks to its cheaper labour and electricity prices, which are lower there than in many of the other CEE countries.

Jiří Kristek commented: “Judging by their position at the top of the ranking, CEE countries can be expected to remain very attractive for industrial and manufacturing investment. It’s quite striking to see how Poland has leapt ahead from previous years, along with Hungary and Slovakia, so CEE countries are gaining ever greater importance in terms of global demand for manufacturing destinations.”

 Europe: rising labour and energy costs

Overall, many European countries have bolstered their longer-term economic outlook and risk profile, thanks to improvements in their ability to achieve sustainability targets, efficient use of resources, and the creation of green economic opportunities.

However, uncertainty about energy supply in European countries has increased their economic risk and negatively impacted their economic prospects in the near term. This, along with higher electricity prices (notably as a result of challenges in supply and rising gas prices due to the war in Ukraine) and labour costs (as a lack of staff availability has pushed wages for workers higher), has meant that countries such as France, Netherlands and Spain have suffered falls in their rankings this year. How swiftly these challenges are resolved will make a significant difference to the competitiveness of many European countries as production locations in the near term.

America: risks and reshoring

The 12 top-ranked countries this year include Colombia, which has improved by one position (mainly thanks to cheap labour and electricity), as well as the USA, which has gone in the opposite direction, down to tenth place this year from third the year before. Similarly, Canada – which was just ahead of the Czech Republic in fourth place in 2021 – has fallen to 19th this year. Both North American countries have maintained a stable cost environment, but have seen an increase in risk elements. This is particularly due to their exposure to natural disaster risk, but also results from a drop in the unemployment rate, and therefore access to available labour. At the same time, the United States is also making a major “reshoring” push, bringing jobs back home to reduce risk and diversify supply chains.

Czechia: the third lowest risk profile and 21st in costs

In the risk scenario, the Czech Republic ranked third this year – two places up from the year before. This comparison looks at geopolitical stability, long-term sustainability targets, market transparency and investment potential.

Table 2: Ranking of countries in the Global Manufacturing Risk Index 2022, risk scenario

Source: Cushman & Wakefield

In terms of costs, the Czech Republic dropped from 15th to 21st place, mainly due to the increase in energy prices. In Asia, however, these still remain low, along with labour costs, and APAC countries thus account for two-thirds of the best 12 rankings. Turkey and Poland also made the top 12, together with Colombia and Peru.

Jiří Kristek, added: “Czechia remains a country with excellent conditions for the manufacturing sector. The risks here are minimal, conditions are stable, and costs are at an acceptable level compared to neighbouring countries. If investors take the combination of all of these factors into account, then the Czech Republic could easily be their first choice.”